1. Field of the Invention
The invention relates generally to a comprehensive online bidding and sales management system for merchant processing services of global credit card transactions including Visa, MasterCard, Discover and American Express.
2. Background of the Invention
Merchant processing services are well known in the art and generally refer to services that process electronic credit card transactions on behalf of merchants, such as consumer credit card, pin debit card, signature debit, commercial card, business card, prepaid and reward card transactions. Similar transactions could involve gift cards, private label cards, and electronic check transactions.
Merchant processing services are offered by various merchant acquirers, financial institutions, independent sales organizations (ISO), member service providers (MSP), or other third party processors.
A merchant that accepts credit cards as payment for goods or services will have a contractual relationship with a merchant acquirer for the settlement of its credit card transactions.
The merchant acquirer is typically a financial institution which is a member of a Visa, MasterCard, or Discover card association. The financial institution may enter into a contractual relationship with an ISO, MSP or third party processor to outsource its obligation to the associations. Merchants typically select a merchant acquirer to provide customer service, to offer reporting, to offer settlement services and make daily deposits, to provide chargeback and retrieval services, to install point-of-sale equipment or software that can be leased or purchased, train the merchant's staff in the use of the equipment, access a credit card network for authorizations of credit card transactions, and ultimately process the merchant's credit card transactions. The merchant acquirer may offer the merchant processing services itself or outsource some or all of its merchant processing services to an authorized third party provider of merchant processing services.
There are typically three institutions involved in processing credit card transactions, the acquiring bank, an issuing bank, and a card association. Well known card associations include, for example, Visa, MasterCard and Discover.
The acquiring bank typically has a merchant processing relationship with a card association such as Visa, MasterCard or Discover, and is considered a member bank authorized to set up merchant accounts directly with merchants. An ISO or MSP offering merchant processing services must typically be sponsored by a member bank to market and sell merchant processing services to merchants on behalf of the member bank.
The issuing bank is the financial institution that issues a credit card to a cardholder that purchases goods and services from merchants. An issuing bank may issue different card types such as Visa, MasterCard or Discover to various market segments and card type categories such as consumer, signature debit, pin debit, rewards, commercial, business, prepaid, and check card.
The card associations typically operate between the acquiring bank and issuing bank to facilitate the large number of credit card transactions occurring on a daily basis. The typical credit card transaction begins at the point of sale where the cardholder has selected certain goods or services to purchase. The merchant typically enters the credit card number by swiping the card through a point-of-sale terminal to read information stored on the magnetic strip or manually enters the bank card number directly into the point-of-sale terminal or other electronic device. The point-of-sale terminal is connected to a computer credit card network which electronically links the merchant to the acquiring bank or merchant processing provider. The acquiring bank is electronically linked to the card association and the card association is electronically linked to the issuing bank. The network allows the merchant to verify the consumer has available credit to obtain goods or services they are attempting to purchase. The network allows for merchants to settle their point of sale device, thereby, ensuring the merchant will receive monies owed to them by the issuing bank.
In actual business practice, there can be variations and exceptions to the above described set up. For example, the acquiring bank and the issuing bank may be one in the same. Moreover, the acquiring bank and issuing bank often contract out one or more of the above support functions to independent sales organizations, member service providers or third party processors. The merchant processors operate and function on behalf of the bank to complete the transaction for the merchant and cardholder.
Various transaction fees are associated with the provision of merchant processing services for credit card transactions, and are well known in the art. Among these transaction fees are processing fees of the acquiring bank and merchant processor, interchange fees paid to the issuing bank, and assessment fees paid to the card association. Each time a credit card transaction is processed, the transaction fees are incurred by the merchant.
As known in the art, merchants may be charged any number of fees by merchant acquirers including a set up fee for each merchant account, a monthly rental or lease fee for the point of sale equipment or software, a percentage fee on each transaction, a per item transaction fee for each transaction, a per item authorization fee for each transaction, a monthly maintenance fee for each account, and a monthly minimum discount fee. Each of these fees varies from one merchant acquirer to the next and from one transaction to the next.
Such transaction fees could also encompass a discount expense, surcharge expense, assessment fee, monthly minimum fee, monthly authorization fee, pin debit fee, monthly batch fee, customer service fee, statement fee, application fee, membership fee, chargeback fee, retrieval fee, automated clearinghouse (ACH) fee, payment card industry (PCI) certification fee and an annual PCI fee.
A discount rate is typically the percentage charged to the merchant by the acquiring institution on either net or gross credit card volume generated by the merchant for goods and services sold. The discount rate will typically include interchange and assessment expenses.
The true management of the discount rate by the merchant is seldom evaluated when shopping for a new merchant processing relationship. For example, the minimum interchange rate a merchant can pay is typically 1.15% and the maximum interchange rate is typically 2.81%. This leaves a 1.66% variance the merchant can manage. Most merchants do not have the time, resources or complete understanding of how their credit card fee structure is administered.
The interchange fee paid by the merchant is based on a rate established by the card associations (Visa, MasterCard and Discover) that is paid by the acquiring bank to the issuing bank as compensation for expenses associated with processing a credit card transaction. Interchange rates vary according to type of card being used by the cardholder and that of the merchant (e.g., retail, travel and entertainment, mail order) and the method of processing (e.g., paper, electronically via a point-of-sale terminal).
The process of applying a particular interchange rate to a credit card transaction is known as qualification. However, as the transaction characteristics vary from the qualified or partially qualified qualification criteria in a pass through, bundled or tier pricing plan, the interchange fee applied to the transaction will increase. The increase in the interchange fee helps offset the added risk or pay for additional cardholder benefits provided by the issuing institution. The interchange rates considered to be qualified vary by merchant type, type of card product being used, the manner in which the merchant submitted information to the acquirer, the amount and type of information being passed by merchant to acquirer, and the geographical location of the merchant. A partially qualified or non-qualified transaction may include the sales associate manually entering the credit card number rather than swiping the card.
Interchange qualification is difficult to understand in part because there are so many different factors considered for each transaction. Some are based on the merchant's retail industry status, some on the type of card product being presented for payment, some on the process used by the merchant to gain authorization for the transaction, some on the type of information received, and many on a combination of these factors. The interchange qualification and thus the interchange rate charged may depend, for example, on whether the credit card is processed electronically from the magnetic strip on the back of the card (swiped), manually by the merchant based on the information set forth on the card, or manually by the merchant based on information provided by the consumer over the telephone. In short, the number and complexity of these factors make it difficult for a merchant to know what its actual monthly expense will be for merchant processing services.
Interchange fees are also based on various interchange categories, such as retail, hotel, supermarket, gas station transactions, assigned to each credit card transaction. Each transaction may be assigned to one of several hundred different interchange categories. Understanding these different interchange categories can be quite difficult for merchants, often resulting in merchants incurring charges much greater than it anticipated for its merchant processing services, or at least not knowing the actual amount of fees it will incur each month for its merchant processing services. These interchange categories are numerous and difficult to understand in part because there are so many different kinds applied.
The amount of transaction fees are further complicated by the variety of card products a card association or issuing bank may offer. For example, Visa and MasterCard typically offer a range of card products such as consumer cards, check cards, corporate cards, business cards, pin debit cards, rewards cards, prepaid cards and so on. Each card product may be subject to different rules and regulations regarding the use, acceptance, and processing of the card product.
Merchant sales representatives of acquirers, banks, financial institutions, merchant processors, ISOs and associations typically solicit and sell merchant processing services. The traditional methods for selling merchant processing services include but are not limited to direct merchant solicitations and quotations for such services.
The process is highly competitive and diverse among sales representatives and thus renders it difficult for merchants to easily compare multiple quotations from different sales representatives each containing numerous rates and fees for the merchant processing services, or to understand the actual expenses that will be incurred by its business under each quotation.
Most merchants tend to rely on a quoted bundled rate, buy rate, or tiered rate from their acquiring bank or merchant processor when comparing processing alternatives. A bundled rate is typically considered a buy rate and can also encompass a tiered rate. The bundled rate, buy rate, or tiered rate is typically the sum amount of interchange, assessment fees and the processing fees bundled into a single percentage rate and per item fee.
Over 20% of all credit transactions, however, never receive the quoted bundled rate, buy rate, or tiered rate because the transaction did not qualify at the qualified interchange rate. Instead those transactions are down graded to a partially qualified or a non-qualified rate in a bundled or tier pricing plan. The down grades can easily add an additional half percent to the merchants overall credit card processing expense and in some cases it is as high as a full one percent. This means that a merchant can end up paying an additional fee ranging from several hundred dollars to thousands of dollars in unforeseen annual expenses.
In an interchange pass through pricing plan method offered by sales representatives, the merchant pays the published interchange rate and assessments by the associations. The merchant also pays for other fees, such as fees for authorization, processing, statements, and chargebacks. Typically, the, interchange pass through method applies transaction fees by adding a small percentage or mark-up to the actual interchange rate for every transaction. This ensures that a merchant only pays the actual interchange rate plus the mark-up that goes to their merchant service provider.
A bundled rate pricing plan method may also be offered by a sales representative, which method typically combines most applicable fees, such as the interchange rate paid to the issuer, assessments to the card associations, and processor fees paid to the merchant processor, into a single percentage rate and single per item fee referred to as a discount fee or discount rate, thus effectively hiding the actual processing fees that make up the bundled rate from the merchant. The discount fee is thus typically the fee charged on the total amount of the gross or net transaction. The bundled rate pricing method could also encompass a tiered rate pricing plan. Other pricing methods could also be offered to merchants by sales representatives.
With conventional methods of quoting merchant processing services to merchants, the merchant does not know the precise fees being charged or what its estimated monthly expenses will be for each quotation. With the numerous fees and various pricing schemes, businesses are easily confused about the prices involved with regard to acquiring merchant services. Different merchant acquirers often provide pricing proposals that are vague and inconsistent, creating confusion when a merchant is shopping around for the lowest price for merchant services.
Moreover, conventional quotations to merchants for merchant processing services typically do not provide a merchant with adequate information regarding whether the financial institutions and merchant processors bidding on its merchant processing services actually provide satisfactory customer service and technical support to the merchant.
Sales representatives, in turn, are faced with rising interchange rates, increased sales and marketing expenses, and eroding profit margins. It thus has become necessary for merchant sales representatives, processors and banks to look towards alternative means to generate affordable lead generation opportunities for merchant processing services.
Conventional methods of selling merchant processing services do not provide sales representatives with access to a large number of merchant leads, the ability to efficiently submit quotations to a large number of merchants seeking merchant processing services, or the ability to instantaneously and efficiently determine and analyze critical information regarding its breakeven rate, monthly net revenue, or the merchant's monthly savings associated with each bid proposal.
Nor do conventional methods provide the sales representative with the opportunity to instantaneously, efficiently and effectively adjust its bid proposal in relation to other bid proposals in order to provide the merchant with its most competitive bid while ensuring that its bid proposal stays within the financial parameters of managing its own business of selling merchant processing services.
Web based reverse auctions for selling products and services over a computer system are known in the art, as described for example in U.S. Pat. No. 6,647,373 to Carlton-Foss. In such systems, electronic reverse auction information is typically transmitted over an electronic network such as the Internet and the reverse auction system is able to securely receive bids electronically from a plurality of proposers, rank the received bids using a plurality of criteria, and electronically provide resulting information to requestors and bidders.
In contrast with the typical “forward” auction, the dimensions for selecting a winning bidder are typically not just best price, but include a variety of additional dimensions, such as the brand and quality of the merchandise proposed, the timeliness of delivery, and the quality of service. In reverse auctions, therefore, the best priced offer may not be the eventual winning bid. The requestor of goods and services may also select two or more of the top bidders with whom to enter a negotiation. Thus, the winning bidder at the completion of the auction may not be the eventual winner of the business contract.
U.S. Patent Application 2008/0120194 to Juras et al. describes a method of assisting businesses in acquiring merchant services by providing merchants at least one competitive acquirer rate through a computer program and network such as the Internet. Such method does not calculate and provide the merchant with the estimated monthly expense for its merchant processing services associated with the competitive acquirer rates provided or rank the competitive quotes based on qualitative feedback of other merchants that have used the merchant processing services of such merchant acquirers. Nor do such methods provide the merchant sales representatives with pricing models to determine the profitability of their quoted rates or change in value of their merchant account portfolio as a result of acquiring such merchant at the respective quote, or the ability to change their respective quotes in real-time in response to quoted rates from other merchant sales representatives.
Prior art systems do not provide a comprehensive online bidding and sales management system that provides merchants with an estimated monthly expense associated with its merchant processing services for each proposal from merchant sales representatives, and a ranking of such proposals based on qualitative feedback from prior merchants that have used the proposed merchant processing services. Merchants can not effectively and efficiently make a one to one comparison of bid proposals for merchant processing services in order to select the most competitive proposals for the best merchant processing services.
Prior art systems do not provide a comprehensive online bidding and sales management system that provides merchant sales representatives with the ability to calculate and analyze the profitability and savings associated with its merchant processing proposals and the value of its merchant account portfolio through various macro and micro pricing models and portfolio valuation models as well as the ability to change its proposal for merchant processing services in real-time in response to more competitive proposals and better ranking of other merchant sales representatives.